DIRECT COAST TO COAST, LLC VS. JOSEPH PETERSON,ET AL. (L-6322-12, MIDDLESEX COUNTY AND STATEWIDE) ( 2017 )


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  •                         NOT FOR PUBLICATION WITHOUT THE
    APPROVAL OF THE APPELLATE DIVISION
    This opinion shall not "constitute precedent or be binding upon any court."
    Although it is posted on the internet, this opinion is binding only on the
    parties in the case and its use in other cases is limited. R.1:36-3.
    SUPERIOR COURT OF NEW JERSEY
    APPELLATE DIVISION
    DOCKET NO. A-1384-14T3
    DIRECT COAST TO COAST, LLC
    and SELECTIVE TRANSPORTATION
    CORPORATION,
    Plaintiffs-Appellants/
    Cross-Respondents,
    v.
    JOSEPH PETERSON, individually and
    as an agent of THE BANFIELD GROUP,
    LLC,
    Defendant-Respondent/
    Cross-Appellant,
    and
    LISA MARIE HARRISON, individually
    and as an agent of THE BANFIELD
    GROUP, LLC and JERRY KETEL,
    individually and as an agent of
    THE BANFIELD GROUP, LLC,
    Defendants.
    ____________________________________
    Argued December 21, 2016
    Before Judges Alvarez, Higbee and Manahan.
    Telephonically reargued February 28, 2017 –
    Decided May 22, 2017
    Before Judges Alvarez, Accurso and Manahan.
    On appeal from Superior Court of New Jersey,
    Law Division, Middlesex County, Docket No.
    L-6322-12.
    Ronald Horowitz argued the cause for
    appellant/cross-respondent.
    Craig Rothenberg argued the cause for
    respondent/cross-appellant.
    PER CURIAM
    Plaintiffs Direct Coast To Coast, LLC and Selective
    Transportation Corporation appeal from a summary judgment
    dismissing their complaint against defendant Joseph Peterson, as
    well as orders denying their motions for reconsideration and for
    counsel fees and costs as a condition of vacating a prior
    default against Peterson and for obtaining the dismissal of his
    counterclaims with prejudice.   Defendant cross-appeals from the
    denial of his motion to impose fees and costs on plaintiffs and
    their counsel for pursuing frivolous litigation and violating
    the rules of professional conduct.   We affirm each of the
    orders.
    The essential facts are undisputed.   Plaintiffs are
    affiliated freight transportation companies located in New
    Jersey.   The Banfield Group, LLC was a freight transportation
    broker located in Oregon with which plaintiffs did business for
    several years.
    2                            A-1384-14T3
    Defendant owned a majority interest in Banfield until the
    end of 2008 when he entered into an agreement conveying his
    interest to the company and a remaining member, who continued to
    operate the business.   The purchase price was payable over
    several years, coinciding with a part-time employment agreement
    for defendant, and defendant was provided a security interest in
    Banfield's tangible and intangible assets.     As part of the
    transaction, Banfield and the remaining member agreed to defend,
    indemnify and hold defendant harmless from any damages arising
    out of the ownership or operation of the company going forward.
    Defendant's security interest was evidenced by a UCC Financing
    Statement filed with the State of Oregon.    Defendant was
    apparently Banfield's only secured creditor.
    In 2009, Banfield began to fall behind in its payments to
    plaintiffs for freight services.     In January 2010, plaintiffs
    sent demand notices to Banfield.    Direct's notice advised if
    payment of the full amount of $128,733.03 owed was not received
    within five business days, Direct would eliminate the minimum
    rates and discounts accorded Banfield and seek "full bureau
    rates" for a total of $468,238.71.    Selective sent a similar
    notice advising if Banfield failed to pay the $17,872.96 it
    owed, Selective would seek payment of $104,732.48.    The
    statements of account attached to those notices provided that
    3                            A-1384-14T3
    the balances owed were incurred by Banfield in late 2009, months
    after defendant sold his interest in the company.
    In addition to not paying plaintiffs, Banfield also stopped
    paying defendant.   In late January 2010, Banfield surrendered
    its assets to defendant, acknowledging he had "a first position
    perfected security interest in all of the tangible and
    intangible assets" of the company.   In March 2010, defendant's
    lawyer wrote to Banfield's creditors, including plaintiffs,
    advising that defendant sold his interest in Banfield in
    December 2008, had "a first perfected security interest in all
    of the assets" of the company, and that following default by
    Banfield, its assets were surrendered to him in lieu of
    foreclosure.   The letter also advised that the value of the
    remaining assets was significantly less than the sums owed
    defendant.
    Following Banfield's demise, plaintiffs continued to do
    business in 2010 and 2011 with defendant, through Auburn
    Logistics, a company owned by defendant's brother.   In early
    2011, after learning that plaintiffs' counsel was attempting to
    collect on Banfield's debts, defendant wrote to him twice.
    Defendant advised plaintiffs' counsel of the sale of defendant's
    interest in Banfield, and that Auburn had no responsibility for
    Banfield's debts.   In response, plaintiffs' counsel wrote to
    4                          A-1384-14T3
    defendant at Auburn, advising if payment of $475,851.73 was not
    received within ten days, "suit will be instituted in New Jersey
    against you, your company and The Banfield Group, together with
    all shippers and consignees."
    Plaintiffs thereafter instituted separate suits in the Law
    Division in Middlesex County against Banfield, Auburn and a
    number of Banfield's consignees and shippers seeking the non-
    discounted balances plaintiffs claimed were due from Banfield.
    Plaintiffs sued Auburn on a theory of successor liability.
    Although having threatened to sue defendant, plaintiffs did not
    name him in those actions, despite their knowledge of his role
    in Banfield and Auburn and did not identify him in their Rule
    4:5-1 disclosures.    Instead, they took defaults against Banfield
    and Auburn for the non-discounted amounts plaintiffs claimed
    Banfield owed and settled with several consignees and shippers,
    recovering $67,000.
    Plaintiffs concede they received additional information in
    the course of discovery in the 2011 suits that defendant
    allegedly diverted payments received from Banfield customers,
    for services rendered by plaintiffs, to himself and withdrew
    "substantial funds" from Banfield's bank accounts in 2010.
    Notwithstanding, plaintiffs never sought to join defendant in
    those actions or amend their Rule 4:5-1 disclosures to identify
    5                         A-1384-14T3
    defendant as a person potentially liable to them on the basis of
    those facts.
    After the 2011 litigation ended, plaintiffs filed this
    action in the Law Division against defendant "individually and
    as an agent of The Banfield Group, LLC" to recover the default
    judgments secured in the 2011 suits, less the sums recovered
    from Banfield's customers in those actions.   Plaintiffs obtained
    a default judgment against defendant in January 2013 for
    $515,779.21.
    Defendant moved to vacate the default, claiming he had not
    been served.   Specifically, defendant claimed no one was present
    at his Oregon home when he was allegedly served, as he and his
    wife, the only two members of their household, were in
    California celebrating a family birthday on the alleged date of
    service.   Following a plenary hearing at which both defendant
    and the process server testified, the court concluded defendant
    had not been served and vacated the default judgment.
    Defendant filed an answer and counterclaim, and discovery
    ensued with each side accusing the other of failing to produce
    discovery.   Defendant eventually moved for summary judgment
    arguing the entire controversy doctrine barred plaintiffs'
    claims against him, that the complaint was filed beyond the
    eighteen-month statute of limitations imposed on interstate
    6                          A-1384-14T3
    motor carriers seeking to recover charges for transportation or
    services by 
    49 U.S.C. § 14705
    (a), that defendant did not owe
    plaintiffs fiduciary duties as a matter of law and that he
    should be awarded his counsel fees and costs as a sanction for
    the bad faith of plaintiffs and their lawyer in pursuing the
    action.
    In a comprehensive written opinion, Judge Paley found
    plaintiffs' failure to join defendant in the first of these
    successive actions was inexcusable and caused defendant
    substantial prejudice.     See Hobart Bros. Co. v. Nat'l Union Fire
    Ins. Co., 
    354 N.J. Super. 229
    , 242 (App. Div.), certif. denied,
    
    175 N.J. 170
     (2002).     Specifically, the judge found on the
    undisputed facts that plaintiffs were aware of defendant's
    affiliation with Banfield since at least 2010, as reflected in
    their demand letters, and had even threatened to sue defendant
    before instituting the 2011 suits.    The judge further found that
    plaintiffs were aware in 2011 that defendant had taken a
    security interest in all of Banfield's assets when he sold his
    interest in the company in late 2008.
    The court concluded that by holding back their claim
    against defendant under those circumstances and suing him only
    after recovering a default judgment against Banfield, plaintiffs
    were seeking to deprive him of any meaningful opportunity to
    7                         A-1384-14T3
    challenge the amount of the judgments and thus to capitalize on
    their failure to exclude him from the prior lawsuits.    See
    Baureis v. Summit Trust Co., 
    280 N.J. Super. 154
    , 160 (App.
    Div.), certif. denied, 
    141 N.J. 99
     (1995) (concluding
    particularized evaluation of successive action revealed risk of
    substantial unfairness to the defendant, unreasonably fragmented
    litigation of the same issues and posed an unfair burden on
    judicial economy).   The judge further found that intervening
    events, notably the remaining member's personal bankruptcy,
    "substantially prejudiced" defendant by depriving him of the
    ability to obtain the benefit of his contractual
    indemnification.
    Judge Paley also concluded plaintiffs' claims were time-
    barred because plaintiffs filed their complaint in September
    2012, thirty-three months after the last services were provided.
    The judge concluded the Interstate Commerce Commission
    Termination Act of 1995 (ICCTA), 
    49 U.S.C. § 13501
    , barred the
    claims because plaintiffs were attempting to recover for unpaid
    freight charges notwithstanding that plaintiffs styled them as
    constituting a breach of fiduciary duty.   See 
    49 U.S.C. § 14705
    (a) ("A carrier providing transportation or service subject
    to jurisdiction under chapter 135 must begin a civil action to
    recover charges for transportation or service provided by the
    8                            A-1384-14T3
    carrier within 18 months after the claim accrues."); Emmert
    Indus. Corp. v. Artisan Assocs., Inc., 
    497 F.3d 982
    , 987, 989-90
    (9th Cir. 2007) (holding the statute's plain language requires a
    carrier to bring its claims to recover for transportation or
    service within eighteen months of accrual and "necessarily
    preempts" state law providing for a longer period of
    limitation).
    Finally, the judge found defendant did not owe any
    fiduciary duties to plaintiffs because defendant was not under
    any "duty to act for or give advice for the benefit of
    plaintiffs on matters within the scope of their relationship."
    See McKelvey v. Pierce, 
    173 N.J. 26
    , 57 (2002).   Defendant was
    not a director or officer at the time the debts accrued and only
    retook control of Banfield's assets after the debts were accrued
    pursuant to his perfected security interest.   The judge found
    plaintiffs had thus "failed to demonstrate the existence of any
    fiduciary interest flowing to them."
    Plaintiffs appeal, contending the court erred by holding
    the action barred by the entire controversy doctrine, that 
    49 U.S.C. § 14705
     "does not apply to bar any of the claims by
    plaintiff, Direct, and only some of the claims by plaintiff,
    Selective," that as a "corporate principal, defendant owed a
    duty to bona fide creditors not to misappropriate corporate
    9                          A-1384-14T3
    funds and, as a broker, not to comingle trust funds," that they
    were entitled to their counsel fees and costs and that the case
    was not ripe for summary judgment.   We reject those arguments.
    We review a grant of summary judgment using the same
    standard that governs the trial court.    Murray v. Plainfield
    Rescue Squad, 
    210 N.J. 581
    , 584 (2012).   Thus, we consider
    "whether the evidence presents a sufficient disagreement to
    require submission to a jury or whether it is so one-sided that
    one party must prevail as a matter of law."    Liberty Surplus
    Ins. Corp., Inc. v. Nowell Amoroso, P.A., 
    189 N.J. 436
    , 445-46
    (2007) (quoting Brill v. Guardian Life Ins. Co. of Am., 
    142 N.J. 520
    , 536 (1995)).   Applying that standard here, we find no
    reason to disturb Judge Paley's careful findings.
    There is no dispute that plaintiffs were well aware of
    defendant's role in Banfield, the entity that accrued the debts,
    and Auburn, the entity plaintiffs sued in 2011 under a theory of
    successor liability, at the time of the first suits.   They admit
    they threatened to sue defendant before instituting the 2011
    litigation and confirmed in discovery facts they claim show
    defendant diverted funds paid to Banfield by consignees and took
    for himself funds in Banfield's bank account after assuming
    control of the company in 2010 pursuant to the surrender of
    assets.   Plaintiffs' claims that defendant breached fiduciary
    10                          A-1384-14T3
    duties to them are inextricably interwoven with the claims they
    brought in the 2011 litigation against Banfield and its
    customers.
    It is further undisputed that the original freight charges
    owed by Banfield to Direct totaled $121,389.38,1 and that Direct
    obtained a default judgment against Banfield for $475,851.73,
    including "loss-of-discount and/or non-payment penalties . . .
    of $354,462.35, almost three times the actual amount of the
    alleged debt."   Likewise, although Banfield only owed Selective
    $13,870.54, Selective obtained a default judgment against it for
    $95,521.10, including loss-of-discount and/or non-payment
    penalties of $81,650.56.
    Although claiming they had no obligation to name defendant
    in the 2011 litigation, plaintiffs continue to assert that
    defendant is precluded from challenging the amount of the
    judgments against Banfield in this suit, presumably because of
    their contention that defendant was in privity with Banfield.
    See Olivieri v. Y.M.F. Carpet, Inc., 
    186 N.J. 511
    , 521 (2006)
    (noting for the doctrine of collateral estoppel to foreclose
    1
    Plaintiffs admitted defendant's allegation in his statement of
    material facts in support of his motion for summary judgment
    that "[a]ccording to the spreadsheet attached to Direct's 2011
    Complaint, the original amount owed is $121,389.38" not the
    $128,733.03 demanded before suit was filed.
    11                           A-1384-14T3
    relitigation of an issue, the party asserting the bar must show,
    among other things, that "the party against whom the doctrine is
    asserted was a party to or in privity with a party to the
    earlier proceeding").   Accordingly, we find no error in the
    trial court's conclusion that this is precisely the sort of
    successive litigation the entire controversy was designed to
    prohibit.   See 700 Highway 33 L.L.C. v. Pollio, 
    421 N.J. Super. 231
    , 236-37 (App. Div. 2011) (holding once a court determines a
    Rule 4:5-1(b)(2) disclosure should have been made in the first
    of successive actions, it must decide whether the party's
    failure to make the disclosure was "inexcusable," and whether
    the undisclosed party's ability to defend the successive action
    has been substantially prejudiced).
    Had plaintiffs joined defendant in the 2011 suits,
    defendant could have asserted his claim that plaintiffs were not
    authorized to assess penalties for late payment2 against Banfield
    and asserted cross-claims or third-party claims for contractual
    indemnification, which the subsequent bankruptcy of the personal
    indemnitor made impossible in this action.   There appearing on
    2
    Plaintiffs admitted that Direct sent several letters to
    Banfield between 2004 and 2007 agreeing to provide it "a 77%
    discount on any freight Direct picks up from The Banfield Group
    and is billed to the Banfield Group," none of which "contained
    any provisions authorizing Direct to assess Banfield penalties
    for late payment."
    12                           A-1384-14T3
    the undisputed facts no reason other than litigation strategy
    for plaintiffs to have held back their claims against defendant,
    we agree with Judge Paley that to permit this suit to go forward
    would impose substantial unfairness upon defendant and
    unreasonably fragment the litigation contrary to the fair
    demands of judicial economy.   See Baureis, 
    supra,
     
    280 N.J. Super. at 159
    .   Plaintiffs' claim that defendant was aware of
    the first action and thus should have intervened in order to
    protect his interest is without merit.   See 
    id. at 163-64
     ("We
    are aware of no principle which would require a party to
    intervene in a pending lawsuit in order to prevent later
    litigation against it.").
    Plaintiffs' argument that their claims are not barred by
    the statute of limitations because they "do not seek freight
    transportation charges from [defendant]," elevates form over
    substance and provides further support for the court's holding
    that the case is barred by the entire controversy doctrine
    because inextricably intertwined with the 2011 litigation.
    There can be no dispute that plaintiffs in this action seek to
    hold defendant responsible for the judgments entered against
    Banfield for freight transportation charges.   Their argument
    that 
    49 U.S.C. § 14705
     "does not apply to bar any of the claims
    by plaintiff, Direct, and only some of the claims by plaintiff,
    13                           A-1384-14T3
    Selective," is based on their claim that Direct did not act as a
    "motor carrier" and "many of Selective's shipments were
    intrastate."
    Plaintiffs, however, contended in the 2011 litigation that
    both Selective and Direct were motor carriers and admitted the
    same in this suit in response to defendant's statement of
    undisputed material facts.3   Although conceding that Selective is
    a motor carrier, plaintiffs assert "its transportation for
    Banfield was mostly in New Jersey" and thus the federal statute
    of limitations would not apply.      In their reply brief,
    plaintiffs assert that "at bare minimum, both [p]laintiffs are
    entitled to over $11,000 of unpaid freight transportation
    charges," noting "[o]f course, these are [d]efendant's
    3
    In their reply brief, plaintiffs assert that although Direct is
    concededly a freight forwarder and a freight forwarder is a
    motor carrier under the ICCTA, "not all shipments tendered to a
    freight forwarder are actually transported by the freight
    forwarder (i.e. it is brokered to another motor carrier)."
    Plaintiffs thus insist that "Direct's pursuit of unpaid freight
    transportation charges from its customer Banfield, and against
    its customer's principal herein" as a freight forwarder are not
    inconsistent positions. We add the emphasis to note the
    inconsistency between this statement and plaintiffs' assertion
    that they are not seeking unpaid freight charges against
    Banfield. Plaintiffs have also not attempted to identify among
    the many hundreds of pages of invoices in the record which ones
    reflect Direct acting only as a "broker" or those that reflect
    charges for intrastate travel.
    14                           A-1384-14T3
    calculations based on the discounted basis and not the non-
    discounted basis which is permitted under federal law."
    It bears emphasizing that plaintiffs have sued defendant on
    judgments totaling over $500,000, that they have insisted
    elsewhere in their papers that their claims are not for unpaid
    freight charges, that federal law does not control their cause
    of action against defendant and that this is not a successive
    action to those they failed to join defendant to in 2011.     As
    plaintiffs concede that the federal statute of limitations bars
    at least part of their claim and have made no effort to quantify
    how much survives beyond asserting that "at bare minimum, both
    [p]laintiffs are entitled to over $11,000 of unpaid freight
    transportation charges," we cannot conclude on this record that
    the trial court erred in finding their claim barred by 
    49 U.S.C. § 14705
    .   See State v. Hild, 
    148 N.J. Super. 294
    , 296 (App. Div.
    1977) (noting a court is not obligated to search the record to
    substantiate an argument advanced in an appellate brief).
    Plaintiffs' claims that defendant "as a corporate principal
    owed a duty to bona fide creditors not to misappropriate
    corporate funds and, as a broker, not to comingle trust funds,"
    ignores the undisputed evidence in the record that defendant
    sold his interest in Banfield at the end of 2008 and only retook
    control in 2010 pursuant to the agreement to surrender assets to
    15                           A-1384-14T3
    him as Banfield's only secured creditor.    Plaintiffs have not
    cited any authority to suggest that a secured creditor in
    possession of a perfected security interest as defendant here
    owes a fiduciary duty to unsecured creditors such as plaintiffs.
    Accordingly, we need not consider the claim further. See Weiss
    v. Cedar Park Cemetery, 
    240 N.J. Super. 86
    , 102 (App. Div. 1990)
    (noting the failure to adequately brief an issue permits the
    court to treat it as waived).
    Plaintiffs' claim for counsel fees and costs as a condition
    of vacating a prior default against Peterson and for obtaining
    the dismissal of his counterclaims with prejudice; and
    defendant's cross-appeal from the denial of his motion to impose
    fees and costs on plaintiffs and their counsel for pursuing
    frivolous litigation and violating the rules of professional
    conduct require only brief comment.   It is well established that
    "fee determinations by trial courts will be disturbed only on
    the rarest of occasions, and then only because of a clear abuse
    of discretion."   Rendine v. Pantzer, 
    141 N.J. 292
    , 317 (1995).
    The court vacated the default judgment entered against
    defendant here following a plenary hearing in which it
    determined defendant was never served.     Accordingly, there was
    no basis for imposing on defendant the obligation of plaintiffs'
    fees as a condition of vacating the judgment under Rule 4:50-1.
    16                          A-1384-14T3
    See Reg'l Constr. Corp. v. Ray, 
    364 N.J. Super. 534
    , 543 (App.
    Div. 2003).   As for securing the dismissal of defendant's
    counterclaims, Judge Paley declined to find the claims were
    frivolous or brought in bad faith.    Defendant's claim for
    frivolous litigation sanctions is barred by the failure to
    observe the Rule's requirements.     See Trocki Plastic Surgery
    Ctr. v. Bartkowski, 
    344 N.J. Super. 399
    , 406 (App. Div. 2001),
    certif. denied, 
    171 N.J. 338
     (2002).    In no event could we find
    Judge Paley abused his considerable discretion in declining to
    award either party fees on this record.    See Packard-Bamberger &
    Co. v. Collier, 
    167 N.J. 427
    , 444 (2001).
    The parties' remaining arguments, to the extent we have not
    addressed them, lack sufficient merit to warrant discussion in a
    written opinion.   See R. 2:11-3(e)(1)(E).
    Affirmed.
    17                             A-1384-14T3